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- Employers can now match your student loan payments with contributions to your retirement plan.
- The arrangement was made possible by a law called the Secure 2.0 Act.
- It may not be the best option for you, especially if you plan to leave your current place of employment in the next few years.
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Paying down your student loan debt can now help you simultaneously boost your retirement savings under new rules allowing employers to treat student loan payments as qualifying contributions toward retirement plans.
A provision that took effect this year in a law known as the Secure 2.0 Act gives employers the option to make matching contributions to 401(k), 403(b)s, and other qualifying retirement accounts that are tied to employees' student loan program.
The benefit is not mandatory. But if your employer offers it, the loan payments are to be treated using the same formula as contributions from your paycheck would be. For example, if your employer's policy is to match your 401(k) paycheck contribution dollar-for-dollar up the first 5% of your salary, the same would apply to the loan-payment match.
"Student loan debt can be a significant drain on household income, shifting resources away from basic necessities, retirement savings, and other goals such as purchasing a home," says Teresa Greenip, CFP and wealth manager at Aspiriant. "Eliminating student loan debt can benefit the economy by shifting household resources from debt repayment to investment and spending, as well as increased personal productivity."
Here's what you need to know about the Secure 2.0 student loan match program in 2024.
Student loan match program offers debt relief to borrows
Saving money and eliminating debt are essential building blocks of long-term wealth-building for most individuals in the US. But workers are largely drowning under ballooning interest rates, education costs, and inflation over the last few years. The student loan payment match program can benefit employees actively paying down student loan debt.
Studies from the Federal Reserve suggest that over $1.6 trillion in student loan debt is affecting millions of borrowers, with 40% missing their October 2023 payment. The average monthly student loan payment is around $503, according to the Education Data Initiative.
The new student loan payment match program has the potential to relieve a lot of that pressure. Under this program, businesses can now start offering their employees with eligible 401(ks), 403(b), 457, or SIMPLE IRA a matched contribution, up to a certain percent, when they make a qualifying student loan payment.
Rather than depositing a portion of your paycheck in your 401(k) to max out your employer match (which is essentially free money), you'll get the same employer match benefit when you make a qualifying loan payment.
Is the student loan match program worth it?
The new student loan match program certainly can put employees in a better situation to start paying down student loan debt. But that may be all it's cracked up to be.
Match contributions from an employer have vesting requirements, which can take up to five years, depending on the plan. If you leave your current place of employment — or get laid off before your money is fully vested — you'll lose some or all of the non-vested money from your employer. So, if the only money in your account is from employer-match contributions, you run the risk of having no retirement savings.
A number of kinks still need to be worked out, as third-party administrators and plan sponsors struggle under the general lack of guidance from the IRS.
One concern plan sponsors have is authenticating employees' student loan payments.
"Employee deferrals to retirement plans are administered by employers themselves, so it's relatively easy to track contributions," Greenip explains. "Since employers do not track student loan repayments, this adds a layer of complexity and administrative support that will be needed to offer the benefit."
How to get a 401(k) match for your student loan payment
Investing platforms and third-party administrators have already begun adding student loan matches to existing employer-sponsored retirement plans. For example, Betterment launched a student loan 401(k) match benefit to its automated 401(k) plan, Betterment at Work.
Other platforms offering this new benefit include Fidelity Brokerage, Highway, and BenefitEd.
"We know that student debt can be a major impediment to saving for retirement," says Sarah Levy, CEO of Betterment. "Our industry-first student loan 401(k) matching solution is a completing addition to our modern 401(k) that will help to broaden plan participation to those whose student debt previously kept them from saving for retirement."
Any employer offering a 401(k), 403(b) 457, or SIMPLE IRA is eligible to offer a student loan match as an employee benefit. Consider reaching out to your employer to inform them of this new opportunity. It could be as easy as sending an email.
Secure 2.0 student loan match program — Frequently asked questions (FAQs)
What is the Secure 2.0 Act student loan match?
The Secure 2.0 Act student loan match is a program implemented in 2024 that allows employers to make matching contributions to their employees' retirement plans after they make a qualifying student loan payment. This program is one of many provisions implemented by Secure 2.0 to help Americans prepare for retirement.
How does Secure 2.0 affect employees?
One of the major ways Secure 2.0 is affecting employees is through the new student loan payment match program. This program allows US workers to pay off student loans while still earning employer-match contributions in a taxable retirement plan.
Will student loans get a 401(k) match in 2024?
Yes. In 2024, employers can match your student loan payments with contributions to your 401(k) or similar retirement plan.Employer matches for qualifying student loan payments are required to offer the same percentage, eligibility, and vesting rules as standard employer matches.
Can an employer pay off an employee's student loan?
Yes. Employers are able to pay up to $5,250 per year of an employee's student loan through the CARES Act. Similarly, your employers can offer a student loan match benefit, which allows employees to earn a matching contribution to a qualifying retirement savings plan after they make a qualified student loan payment.
Junior Investing Reporter
Tessa Campbell is a Junior Investing Reporter for Personal Finance Insider. She reports on investing-related topics like cryptocurrency, the stock market, and retirement savings accounts. She originally joined the PFI team as a Personal Finance Reviews Fellow in 2022. Her love of books, research, crochet, and coffee enriches her day-to-day life.
As a seasoned financial expert deeply entrenched in the world of investing and personal finance, I bring to you a wealth of knowledge and hands-on experience in navigating the intricacies of the financial landscape. My understanding spans across various domains, from market trends and tech advancements to the complexities of retirement planning and investment product evaluations. Allow me to dissect and shed light on the key concepts woven into the fabric of the article about the Secure 2.0 Act and its implications on retirement planning through student loan payment matching.
The article unveils a groundbreaking development in the realm of employer-sponsored retirement plans, made possible by the Secure 2.0 Act. This legislation introduces a novel approach, allowing employers to match their employees' student loan payments with contributions to qualifying retirement accounts such as 401(k), 403(b)s, and others. This move is significant, considering the pervasive impact of student loan debt on households, as highlighted by Teresa Greenip, a Certified Financial Planner (CFP) and wealth manager at Aspiriant.
The Secure 2.0 student loan match program is not mandatory, but if employers choose to implement it, the matching contributions follow the same formula as regular paycheck contributions to retirement plans. For instance, if an employer typically matches 401(k) contributions dollar-for-dollar up to the first 5% of an employee's salary, the same matching applies to the qualifying student loan payments.
Here are the key concepts discussed in the article:
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Secure 2.0 Act: Enacted in 2024, this legislation empowers employers to match their employees' student loan payments with contributions to retirement plans.
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Student Loan Match Program: This program allows businesses to offer matching contributions to eligible retirement accounts when employees make qualifying student loan payments.
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Impact on Debt Relief: The program aims to alleviate the financial burden of student loan debt, especially considering the staggering $1.6 trillion in student loan debt affecting millions of borrowers, according to studies from the Federal Reserve.
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Vesting Requirements: One consideration for employees is the vesting requirements associated with employer match contributions, which may take up to five years. Leaving employment before full vesting can result in the loss of non-vested employer contributions.
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Third-Party Administrators and Plan Sponsors: The implementation of the program faces challenges, including the need for authentication of employees' student loan payments. This adds complexity and administrative support requirements, as employers do not traditionally track student loan repayments.
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Investing Platforms Offering the Benefit: Various investing platforms and third-party administrators, such as Betterment, Fidelity Brokerage, Highway, and BenefitEd, have started incorporating student loan matches into existing employer-sponsored retirement plans.
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Employer Eligibility: Any employer offering a 401(k), 403(b), 457, or SIMPLE IRA is eligible to offer the student loan match program as an employee benefit.
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FAQs on Secure 2.0 Student Loan Match Program: The article provides answers to frequently asked questions, addressing the purpose and impact of the Secure 2.0 Act on employees and their retirement plans.
In conclusion, this innovative approach to linking student loan payments with retirement contributions underscores the evolving landscape of employee benefits and financial planning, providing an avenue for individuals to tackle student loan debt while simultaneously building their retirement savings.